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United States Government Accountability Office:
GAO:
Report to Congressional Committees:
March 2011:
Medicaid:
Improving Responsiveness of Federal Assistance to States during
Economic Downturns:
GAO-11-395:
GAO Highlights:
Highlights of GAO-11-395, a report to congressional committees.
Why GAO Did This Study:
In response to the most recent U.S. recession, from December 2007 to
June 2009, Congress passed the American Recovery and Reinvestment Act
of 2009 (Recovery Act). To help states maintain their Medicaid
programs and provide states with general fiscal relief, the Recovery
Act temporarily increased the federal share of Medicaid funding for
states. The federal funding states receive for Medicaid is determined
by a statutory formula—the Federal Medical Assistance Percentage
(FMAP). The Recovery Act also required GAO to study options for
providing a temporary increased FMAP in response to future recessions.
GAO reviewed how past recessions affected states’ ability to fund
Medicaid, examined the responsiveness of past increased FMAP
assistance to state needs, and identified options for adjusting the
increased FMAP formula for use during future recessions.
To conduct this work, GAO reviewed its previous reports on recessions
and the increased FMAP and similar work from other organizations. GAO
analyzed federal Medicaid data and enrollment data provided by state
Medicaid directors. GAO also analyzed labor market data from the
Bureau of Labor Statistics, state revenue data from the Census Bureau,
and the Federal Reserve Bank of Philadelphia’s Coincident Indexes to
assess states’ ability to fund Medicaid during economic downturns. GAO
identifies options for Congress to consider but does not make
recommendations in this report.
What GAO Found:
Past recessions hampered states’ ability to fund increased Medicaid
enrollment and maintain existing services. Both the 2001 and 2007
recessions resulted in increased Medicaid enrollment and decreased
revenues, though states’ experiences varied. During the 2007
recession, total state tax revenues declined by 10.2 percent from the
fourth quarter of 2007 to the second quarter of 2009, with individual
state experiences varying. For example, North Dakota had a revenue
increase of 6.9 percent while Arizona had a decline of 23.1 percent.
In addition, the effect of increased Medicaid enrollment and decreased
revenues persisted after the recessions ended, causing states to
further adjust their Medicaid programs.
The increased FMAP funds provided by the Recovery Act were more
responsive to state Medicaid needs than were funds provided after the
2001 recession. Overall, the Recovery Act funds were timed for state
Medicaid funding needs. Assistance began during the recession while
nearly all states were experiencing Medicaid enrollment increases as
indicated by rising unemployment and revenue decreases as indicated by
declining wages and salaries. The FMAP funds were targeted for
Medicaid enrollment growth, but did not distinguish among states with
varying degrees of reduced revenue in the allocation of assistance.
The increased FMAP following the 2001 recession was provided well
after the recession ended and was not targeted for state Medicaid
needs.
Past recessions offer options for improving the responsiveness of
temporary FMAP increases to state Medicaid program needs. More
responsive assistance can aid states in addressing increased Medicaid
enrollment resulting from a national recession, as well as addressing
decreases in states’ revenues. GAO has revised a prototype formula for
temporary FMAP increases it developed in 2006. The revised formula
would address the timing and targeting of funds, and further improve
the responsiveness of the increased FMAP funding. In particular, these
revisions (1) use an automatic trigger to start the assistance program
closer to the onset of a national recession, (2) add several quarters
of transitional assistance before ending the increased FMAP
assistance, and (3) target assistance by calculating the increased
funding needed on the basis of the economic conditions of each state.
In commenting on a draft of this report, the Department of Health and
Human Services (HHS) agreed with the analysis and goals of the report
while emphasizing that changes to the FMAP formula must be authorized
by statute. HHS also stated that it is critical to align changes in
the FMAP formula to individual state circumstances in order to avoid
unintended consequences for beneficiaries as well as provide budget
planning stability for states. GAO agrees that statutory changes would
be necessary to implement any adjustments to the FMAP, but does not
make recommendations regarding particular actions in this report.
View [hyperlink, http://www.gao.gov/products/GAO-11-395] or key
components. For more information, contact Thomas J. McCool at (202)
512-2642 or mccoolt@gao.gov; or Carolyn L. Yocom at (202) 512-7114 or
yocomc@gao.gov.
[End of section]
Contents:
Letter:
Background:
Past Recessions in 2001 and 2007 Hampered States' Ability to Fund
Medicaid:
Recovery Act Funds Were More Responsive to State Medicaid Needs than
Previous Assistance:
Past Recessions Offer Insights on Improving the Responsiveness of FMAP
Adjustments:
Agency Comments and Our Evaluation:
Appendix I: Children's Health Insurance and Other Publicly Funded
Health Programs:
Appendix II: Comments from the Department of Health and Human Services:
Appendix III: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Temporary Increases in FMAP:
Table 2: Revised Prototype Formula and Purpose of Revision, by Key
Design Decision:
Table 3: Selected States' Percentage of State Expenditures on Health
Care by Program, 2002-2003:
Figures:
Figure 1: State Economic Downturns and National Recessions, Quarterly
Percent Change in Coincident Indexes, 1999-2010:
Figure 2: Percentage Change in Medicaid Enrollment, December 2007
through December 2009:
Figure 3: Percentage Change in State Tax Revenue, Fourth Quarter 2007
to Fourth Quarter 2009:
Figure 4: States in Economic Downturn during the 2007 Recession, by
Quarter:
Figure 5: States' Peak Quarter of Unemployment and Lowest Quarter of
Wages and Salaries during the 2007 National Recession:
Figure 6: Change in Unemployment Rate and Percent Change in State
Medicaid Share by State, Recovery Act, Quarter 4 (July-September 2009--
Unemployment Component Only:
Figure 7: Change in Unemployment Rate and Percent Change in State
Medicaid Share by State, Recovery Act, Quarter 4 (July-September 2009):
Figure 8: States in Economic Downturn during the 2001 Recession, by
Quarter:
Figure 9: States' Peak Quarter of Unemployment and Low Quarter of
Wages and Salaries during the 2001 National Recession:
Figure 10: Total Enrollment in the Children's Health Insurance Program
(CHIP):
Abbreviations:
BEA: Bureau of Economic Analysis:
BLS: Bureau of Labor Statistics:
CHIP: Children's Health Insurance Program:
CMS: Centers for Medicare & Medicaid Services:
FMAP: Federal Medical Assistance Percentage:
FPL: federal poverty level:
GDP: gross domestic product:
HHS: Department of Health and Human Services:
NASBO: National Association of State Budget Officers:
NBER: National Bureau of Economic Research:
PCI: per capita income:
PPACA: Patient Protection and Affordable Care Act:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 31, 2011:
Congressional Committees:
From December 2007 through June 2009, the nation experienced the most
serious economic crisis since the Great Depression. This recession saw
overall economic activity in the United States decrease by 4.1 percent
with a loss of 8.3 million jobs.[Footnote 1] Although the National
Bureau of Economic Research (NBER) determined that the recession ended
in June 2009, the effects of the economic crisis remained for many
states.[Footnote 2] As of December 2010, 25 states continued to
experience unemployment rates above 9 percent, and more than 14.5
million people were considered unemployed--over one-third of whom had
been jobless for 6 months or longer.[Footnote 3] As in past
recessions, as unemployment increased so did enrollment in Medicaid, a
joint federal-state health care program for certain low-income
individuals. The 2007 recession also resulted in state tax revenue
decreases, limiting states' capacity to maintain funding for many
programs, including Medicaid.
The amount of federal funds states receive for their Medicaid programs
is determined by the Federal Medical Assistance Percentage (FMAP)
formula.[Footnote 4] The FMAP is the percentage of expenditures for
most Medicaid services that the federal government pays; the remainder
is referred to as the state share.[Footnote 5] In response to the 2007
recession, and the recession in 2001, Congress temporarily increased
the regular FMAP to provide states with additional funding for their
Medicaid programs. Following the 2001 recession, the Jobs and Growth
Tax Relief Reconciliation Act of 2003 provided states $10 billion in
assistance through an increased FMAP.[Footnote 6] In response to the
2007 recession, to provide states with fiscal relief and protect state
Medicaid programs, Congress provided states with increased FMAP
funding through the American Recovery and Reinvestment Act of 2009
(Recovery Act) which totaled an estimated $89 billion through December
2010.[Footnote 7] Subsequently, Congress extended this source of
funding through June 30, 2011, subject to certain modifications, which
will result in states receiving an estimated $16.1 billion in
increased FMAP assistance.[Footnote 8]
In March 2010, the Patient Protection and Affordable Care Act (PPACA),
as amended, was enacted.[Footnote 9] PPACA expands Medicaid
eligibility to include most individuals with incomes at or below 133
percent of the federal poverty level (FPL) beginning in January
2014.[Footnote 10] As this provision of PPACA is implemented, states
will expand coverage under the Medicaid program to an estimated 18
million additional people,[Footnote 11] which could further affect
states' ability to fund Medicaid during future economic downturns.
In a 2006 report, we provided options for Congress to consider when
assisting states in their efforts to meet increased Medicaid
expenditures resulting from recessions.[Footnote 12] We noted that
among states, economic downturns have varied widely in their onset,
depth, and duration, and they did not coincide exactly with national
recessions.[Footnote 13] Likewise, increases in Medicaid enrollment
and expenditures were specific to individual states because of
differences in states' economic conditions, Medicaid program designs,
and health care costs. To address these differences, we noted that
calculating the increased FMAP using changes in states' unemployment
rates was a key variable because it reflected the potential for
increased Medicaid enrollment resulting from a state's economic
downturn.
The Recovery Act mandated that we conduct an analysis of past national
economic downturns, including the effects of the increased FMAP during
these periods, and that we provide recommendations, as appropriate,
for further modifications of the increased FMAP formula to make it
more responsive to state Medicaid program needs during such periods in
the future.[Footnote 14] GAO is issuing two reports to address this
mandate. This report, (1) describes the effect past recessions, in
2001 and 2007, had on the ability of states to fund their Medicaid
programs; (2) examines the responsiveness of past increased FMAPs to
state Medicaid program needs resulting from the 2001 and 2007
recessions; and (3) identifies options for adjusting the FMAP to make
it more responsive to state Medicaid program needs during future
recessions[Footnote 15].
To describe the effects of past recessions on state Medicaid programs,
we reviewed prior GAO reports that examined the effect of past
recessions on Medicaid enrollment and expenditures, as well as the
responsiveness of increased FMAPs to state Medicaid funding needs. We
reviewed similar research by The Kaiser Commission on Medicaid and the
Uninsured, the Urban Institute, and other organizations on the
relationship between recessions, increased unemployment, and increased
Medicaid enrollment. We analyzed Medicaid enrollment data from the
Centers for Medicare & Medicaid Services (CMS)--the agency that
oversees states' Medicaid programs--and used Medicaid enrollment data
that we collected from a survey of state Medicaid directors or their
designated contacts in August 2009 and March 2010.[Footnote 16] We did
not independently verify these data; however, we reviewed all federal
Medicaid data and survey responses for internal consistency, validity,
and reliability. On the basis of these activities, we determined these
data were sufficiently reliable for the purpose of our report. We also
analyzed state-level economic indicators, including data on
unemployment from the Bureau of Labor Statistics (BLS), and quarterly
state tax revenue data from the Bureau of the Census. To compare the
economic conditions across states, we analyzed and compared the
Federal Reserve Bank of Philadelphia's Coincident Indexes, which
summarize the economic conditions of each of the 50 states.[Footnote
17] We obtained additional state-specific data from the National
Association of State Budget Officers (NASBO), the National Conference
of State Legislatures, and the National Governors Association. Staff
from the American Enterprise Institute for Public Policy Research, the
Center for Studying Health System Change, and Federal Funds
Information for States provided additional information on the effect
of past recessions on state economies and Medicaid programs.
To examine the responsiveness of past increased FMAPs to state
Medicaid program needs, we reviewed the relationship between the
increased FMAP and specific state circumstances by analyzing the
Federal Reserve Bank of Philadelphia's Coincident Indexes, BLS data on
changes in unemployment, and data on wages and salaries from the
Bureau of Economic Analysis (BEA). We assessed the reliability of the
data we used for this review and determined that they were
sufficiently reliable for our purposes. We defined responsiveness in
terms of two criteria: timing and targeting. Timing refers to whether
funds were provided when states most needed them. Targeting refers to
whether the distribution of funds reflected different state needs for
funding the cost of new Medicaid enrollees attributable to the
recession and maintaining their existing Medicaid programs as states'
revenues declined as a result of the recession.
To identify options for adjusting the FMAP formula during recessions,
we analyzed data from BLS, BEA, and the Census Bureau to assess the
revenue capacities of states to meet Medicaid program needs during
recessions. In addition, we reviewed our previous work on increasing
the FMAP in response to recessions, and investigated alternatives that
would make it more responsive to specific state needs. This report
presents a framework and discussion of key design decisions for a
modified increased FMAP formula. A subsequent GAO report will present
additional detail on a modified formula and simulations of its effects
on the allocation of assistance to states.
We conducted this performance audit from April 2010 to March 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
The causes of national recessions, their depths, and durations vary
considerably. For example, the 2001 recession lasted only 8 months,
while the 2007 recession was 18 months long. The nation also
experienced different declines in economic activity, as measured by
gross domestic product (GDP), due to these recessions. For example,
during the 2007 recession GDP decreased 4.1 percent whereas GDP
decreased by 0.3 percent during the 2001 recession.
Recent economic research suggests that while economic downturns within
states generally occur around the same time as national recessions,
their timing and duration can vary. States have different industry
mixes and resources, and they may enter a downturn before the national
recession begins or well after the recession has set in.[Footnote 18]
The timing of a state's economic downturn is determined by its
individual economic condition and revenue structure, which can also
affect a state's capacity to fund its Medicaid program. (See figure 1
for differences in the timing, depth, and duration of state downturns
compared to the national recessions of 2001 and 2007.)
Figure 1: State Economic Downturns and National Recessions, Quarterly
Percent Change in Coincident Indexes, 1999-2010:
[Refer to PDF for image: illustrated table]
For each state, and for the United States as a whole, the table
depicts the following quarterly percent change in coincident indexes:
greater than or equal to zero;
less than 0% change, but greater than -0.05% change;
less than -0.05% change, but greater than -0.15% change;
less than or equal to -0.15% change.
Source: GAO analysis of Federal Reserve Bank of Philadelphia data.
Note: Figure shows differences in the timing, depth, and duration of
state downturns compared to the national recessions of 2001 and 2007,
as defined by the National Bureau of Economic Research. The figure is
based on GAO analysis of state Coincident Index data from the Federal
Reserve Bank of Philadelphia. Individual states were determined to be
in an economic downturn if their Coincident Index values, which are
published monthly by the Federal Reserve Bank of Philadelphia, had
declined from the prior quarter.
[End of figure]
Medicaid enrollment, and the state funding needed to support the
program, increase during and after national recessions, when the
number of people with incomes low enough to qualify for Medicaid
coverage rises as economies weaken.[Footnote 19] Researchers have
estimated that for every 1 percent increase in national unemployment,
Medicaid enrollment increases by 1 million.[Footnote 20] Moreover, as
the economy weakens, states have reduced revenues with which to fund
their share of the Medicaid programs in place prior to the recession.
Under the regular FMAP, the federal government pays a larger portion
of Medicaid expenditures in states with low per capita income (PCI)
relative to the national average, and a smaller portion for states
with higher PCIs.[Footnote 21] Use of PCI was, by design, intended to
adjust for differences in state funding ability. PCI also serves as an
indicator for the number of people eligible for Medicaid in a given
state. The Department of Health and Human Services (HHS) calculates
and publishes the regular FMAP for each state for each federal fiscal
year based on a statutory formula that incorporates PCI. The regular
FMAP for federal fiscal year 2010 for states ranged from 50.00 percent
to 75.67 percent, and was calculated using the following formula:
[Footnote 22]
FMAPstate = 1 - ((PCI state)2/(PCI U.S.)2 * 0.45):
Our prior work concluded that PCI is not a comprehensive indicator of
states' total available resources and thus does not accurately
represent states' funding ability.[Footnote 23] PCI is a poor proxy
for the size and cost of serving states' poverty populations, which
vary considerably. For example, the elderly and disabled constitute
about 25 percent of the Medicaid population, but constitute
approximately 67 percent of all Medicaid expenditures. As a result,
two states with low PCIs may have very different proportions of
elderly persons potentially eligible for Medicaid, and thus very
different amounts of Medicaid spending. In addition, the regular FMAP
for each state is generally published in the Federal Register a year
in advance of the federal fiscal year in which it will apply.[Footnote
24] For example, regular FMAPs for fiscal year 2011 (which began
October 1, 2010) were published November 27, 2009, based on a 3-year
average of PCI data from 2006 through 2008. This lag time between the
publication and implementation of the regular FMAP provides states
with an opportunity to adjust to changing levels of federal
assistance. However, it also means that the PCI amounts used to
calculate FMAPs for a given fiscal year do not reflect states'
economic conditions for that year.
To help states meet additional Medicaid program needs, and to provide
fiscal relief, Congress established temporary FMAP increases for
states in 2003, 2009, and 2010.[Footnote 25] Increased FMAPs help
states maintain their Medicaid programs during downturns. They may
also free up funds states would otherwise have used for Medicaid and
make them available to address other state budget needs. The FMAP is a
readily available mechanism for providing temporary assistance to
states because assistance can be distributed quickly, with states
obtaining funds on a quarterly basis through Medicaid's existing
payment system. In 2003, the increased FMAP provided states with $10
billion in assistance. When combined, the increased FMAP formulas in
the Recovery Act and the 2010 extension provided states with an
estimated $105.1 billion in assistance. These formulas also
incorporated three components for calculating the increase: a
component that protected states against decreases in FMAP,[Footnote
26] an across-the-board component, and a component based on a state's
increase in unemployment. (See table 1 for more information on these
increased FMAPs for the 2001 and 2007 recessions.)
Table 1: Temporary Increases in FMAP:
Dates of recession[A]: March 2001-November 2001;
Legislation (date enacted): Section 401 of the Jobs and Growth Tax
Relief Reconciliation Act of 2003 (May 28, 2003);
Amount of Medicaid assistance: $10 billion[B];
Duration: Last two quarters of fiscal year (FY) 2003 though the first
three quarters of FY 2004;
Calculation used to provide increased assistance: 1. Maintains a
state's regular FMAP rate to at least the rate for the prior fiscal
year;[C] and; 2. an across-the-board increase of 2.95 percentage
points in a state's FMAP, subject to certain requirements.
Dates of recession[A]: December 2007-June 2009;
Legislation (date enacted): Section 5001 of the American Recovery and
Reinvestment Act of 2009 (Feb. 17, 2009);
Amount of Medicaid assistance: $89 billion[D];
Duration: First quarter of FY 2009 through the first quarter of FY
2011;
Calculation used to provide increased assistance: 3. Maintains a
state's regular FMAP to at least its highest rate since FY 2008;[C];
4. an across-the-board increase of 6.2 percentage points in a state's
FMAP, subject to certain requirements; and; 5. an additional increase
in a state's FMAP, subject to certain requirements, based on a
qualifying increase in a state's rate of unemployment[E].
Dates of recession[A]: December 2007-June 2009;
Legislation (date enacted): Section 201 of the Education, Jobs and
Medicaid Assistance Act (Aug. 10, 2010);
Amount of Medicaid assistance: $16.1 billion[F];
Duration: Second quarter of FY 2011 through third quarter of FY 2011;
Calculation used to provide increased assistance: 6. Maintains a
state's regular FMAP to at least its highest rate since FY 2008;[C];
7. an across-the-board FMAP increase of 3.2 percentage points for the
second quarter of FY 2011, and of 1.2 percentage points for the third
quarter of FY 2011, subject to certain requirements; and; 8. an
additional increase in a state's FMAP, subject to certain
requirements, based on a qualifying increase in a state's rate of
unemployment.[E]
Source: GAO summary of federal legislation.
Notes: Fiscal year refers to the federal fiscal year, which runs from
October 1 through September 30.
[A] Recession dates cited were designated by the National Bureau of
Economic Research (NBER).
[B] Amount of funding provided by law.
[C] This component is also referred to as a "hold-harmless" provision
because it maintains a state's regular FMAP at the higher of its
current or previous year's rate.
[D] Congressional Budget Office, The Budget and Economic Outlook: An
Update (Washington, D.C.: August 2010).
[E] The unemployment adjustment is generally determined using both
changes in a state's unemployment rate and the increases in its
regular FMAP rate. The adjustment is calculated for each state, in
part, by determining a percentage increase based on a comparison of
the state's average monthly unemployment rate during the applicable
consecutive 3-month periods to the state's lowest average monthly
unemployment rate for any consecutive 3-month period since January 1,
2006. This unemployment percentage may also be maintained at its
highest level for a given quarter from January 1, 2009, through July
1, 2010 (under the Recovery Act), and through January 1, 2011 (under
the Education, Jobs, and Medicaid Assistance Act).
[F] Congressional Budget Office, Budgetary Effects of Senate Amendment
4575 (Washington, D.C.: August 4, 2010).
[End of table]
The enactment of PPACA affects federal and state funding of the
Medicaid program. For example, PPACA establishes an eligibility
threshold for state Medicaid programs by requiring states, beginning
on January 1, 2014, to cover a new eligibility group of nonelderly,
nonpregnant individuals at or below 133 percent of the FPL.[Footnote
27] Consequently, the number of individuals who qualify for Medicaid
is estimated to increase by 18 million, according to the CMS actuary.
The federal government will pay 100 percent of the cost of covering
newly eligible individuals in fiscal years 2014, 2015, and 2016, with
the federal match gradually reduced to 90 percent by 2020.[Footnote
28] States will continue to receive the regular FMAP for most
individuals who meet the Medicaid eligibility requirements that each
state had in place prior to the enactment of PPACA.[Footnote 29]
Past Recessions in 2001 and 2007 Hampered States' Ability to Fund
Medicaid:
Past recessions hampered states' ability to fund increased Medicaid
enrollment and maintain existing services. Within this broad national
trend, however, there was significant variation among states in terms
of their increases in Medicaid enrollment and revenue losses. Further,
these enrollment increases and revenue declines continued after the
national recessions ended, and states made additional adjustments to
their Medicaid programs.
Past Recessions Resulted in Increased Medicaid Enrollment, though
States' Experiences Varied:
Medicaid enrollment increased during past recessions, in part due to
increased unemployment, which led more individuals to become eligible
for the program. During the 2001 recession--March 2001 through
November 2001--the national unemployment rate increased from 4.3 to
5.5 percent, and total Medicaid enrollment increased by 5.6 percent,
which added approximately 2 million enrollees to the Medicaid program.
During the 2007 recession, from December 2007 through June 2009, the
unemployment rate grew from 5.0 to 9.5 percent, while Medicaid
enrollment rose by 9.7 percent--adding nearly 4.3 million enrollees to
the program.
Although Medicaid enrollment increased nationally during the 2001 and
2007 recessions, the percentage change varied considerably at the
state level. All new Medicaid enrollment was not attributable to past
recessions, as some states expanded eligibility or received waivers
that increased the size of their programs.[Footnote 30] In 2001,
changes in enrollment ranged from an increase of 12.4 percent in
Mississippi's Medicaid program to a decline of 5.6 percent in New
Jersey. The 2007 recession also showed variation. From December 2007
through December 2009, Nevada experienced 32 percent enrollment growth
in its Medicaid program, while Tennessee's Medicaid program enrollment
remained steady. Although the magnitude of the enrollment increases
across states was largely due to the economic downturn, program
expansions and enrollment outreach activities implemented in some
states also contributed to enrollment growth.[Footnote 31] Figure 2
shows the changes in Medicaid enrollment among the states and the
District of Columbia during the 2007 recession.
Figure 2: Percentage Change in Medicaid Enrollment, December 2007
through December 2009:
[Refer to PDF for image: illustrated U.S. map]
less than 5.0% (3 states):
Arkansas:
Tennessee:
Texas:
5.1% to 10% (10 states):
California:
Maine:
Massachusetts:
Kentucky:
Pennsylvania:
Mississippi:
Rhode Island:
South Carolina:
South Dakota:
West Virginia:
10.1% to 15% (15 states):
Alabama:
District of Columbia:
Kansas:
Minnesota:
Missouri:
Montana:
Nebraska:
New Hampshire:
New Jersey:
New Mexico:
New York:
North Carolina:
Oklahoma:
Washington:
Wyoming:
15.1% to 20% (9 states):
Delaware:
Connecticut:
Georgia:
Indiana:
Louisiana:
Michigan:
Ohio:
Vermont:
Virginia:
greater than 20% (14 states):
Alaska:
Arizona:
Colorado:
Florida:
Hawaii:
Idaho:
Illinois:
Iowa:
Maryland:
Nevada:
North Dakota:
Oregon:
Utah:
Wisconsin:
Sources: GAO analysis of state reported Medicaid enrollment (data);
Map Resources (map).
Notes: Percentages are based on GAO analysis of Medicaid enrollment
data from December 2007 through December 2009 as reported by state
Medicaid directors.
"States" includes the District of Columbia.
[End of figure]
Past Recessions Resulted in Decreased State Revenue to Maintain
Medicaid Services, though States' Experiences Varied:
As economic activity slowed during the 2001 and 2007 recessions,
states' revenues decreased,[Footnote 32] which hampered states'
ability to fund their existing Medicaid services and support new
enrollment. For example, due to the 2007 recession, total state tax
revenues declined by 10.2 percent from the fourth quarter of 2007 to
the fourth quarter of 2009. However, the depth and duration of states'
economic downturns varied. As shown in figure 3, 44 states and the
District of Columbia experienced decreases in tax revenue during the
2007 recession; for example, Iowa experienced a 1 percent revenue
decrease, while revenue declined 23.1 percent in Arizona. Over this
same period, North Dakota's tax revenue increased by 6.9 percent.
Figure 3: Percentage Change in State Tax Revenue, Fourth Quarter 2007
to Fourth Quarter 2009:
[Refer to PDF for image illustrated U.S. map]
Greater than 0 (7 states):
Arkansas:
Massachusetts:
North Carolina:
North Dakota:
Oregon:
West Virginia:
Wisconsin:
0% to -9.9% (18 states):
Alabama:
Iowa:
Kansas:
Kentucky:
Louisiana:
Maine:
Maryland:
Michigan:
Minnesota:
Mississippi:
Nebraska:
Nevada:
New York:
Ohio:
Pennsylvania:
Rhode Island:
South Dakota:
Virginia:
-10.0% to -19.9% (22 states):
California:
Colorado:
Connecticut:
Delaware:
District of Columbia:
Florida:
Georgia:
Hawaii:
Idaho:
Illinois:
Indiana:
Missouri:
Montana:
New Jersey:
New Mexico:
Oklahoma:
Tennessee:
Texas:
Utah:
Vermont:
Washington:
Wyoming:
Less than -20.0% (4 states):
Alaska:
Arizona:
New Hampshire:
South Carolina:
Sources: GAO analysis of U.S. Census revenue (data); Map Resources
(map).
Notes: Map shows the total percent change in quarterly tax revenue for
each state from the fourth quarter 2007 to the fourth quarter 2009.
"States" includes the District of Columbia.
[End of figure]
As a result of the revenue decreases and Medicaid enrollment increases
brought on by the 2001 and 2007 recessions, states took steps to
contain Medicaid costs. For example, in response to the 2001
recession, 34 states took actions to reduce costs that included
freezing or reducing provider payments; capping program enrollment;
eliminating coverage for optional services; and increasing premiums
and copayments for prescription drugs. Revenue decreases due to the
2007 recession prompted 31 states to cut health care programs by
reducing or freezing provider rates or increasing provider taxes.
Other states took steps to control prescription drug costs, amend
enrollment criteria for optional eligibility groups, and limit or
eliminate coverage for optional services, such as mental health or
dental care.
Increased Medicaid Enrollment and Decreased Revenue Continued after
Recessions Ended:
After the 2001 and 2007 recessions ended, Medicaid enrollment remained
high or increased in most states, even as revenues continued to
decrease or remain below their prerecession levels. As the economic
downturns persisted, states remained hampered by both effects in their
ability to fund Medicaid and other state programs. According to NASBO,
Medicaid is the largest component of state budgets. Therefore, to
balance their budgets, states implemented a variety of actions to
contain costs, such as modifying eligibility criteria, limiting
benefits, and instituting new or higher copayments.
Following the 2001 recession, which ended in November of that year,
the national unemployment rate remained above prerecession levels,
peaking at 6.3 percent in June 2003--19 months after the recession was
declared over. In the second quarter of 2002, state tax revenue
dropped by 3.2 percent, continuing a decline that started during the
2001 recession. Further, Medicaid enrollment increased by 9.5 percent
in 2002, and by another 5.1 percent in 2003. As a consequence in 2002,
states instituted additional Medicaid enrollment requirements, such as
waiting lists, increased premiums, and changes in optional eligibility
categories. In some cases, a state's enrollment increase was due to
policy changes. For example, the most significant factor driving
Utah's enrollment growth was the state's decision to extend a limited
benefit package to parents and adults without children in fiscal year
2003.[Footnote 33]
In June 2009--the designated end of the 2007 recession--the national
unemployment rate was 9.5 percent and rising, reaching 10.1 percent in
October 2009. As a result, Medicaid enrollment continued to grow from
48.7 million in June 2009 to 49.7 million in October 2009, and to 50.7
million in February 2010. In most states, tax revenue remained below
prerecession levels after the 2007 recession, resulting in continued
budgeting challenges in 41 states. To balance their budgets, states
implemented various Medicaid program cuts and other adjustments. For
example, 28 states reduced or froze provider payment rates; 22 states
reported implementing or considering restrictions on optional
benefits, such as eliminating dental and vision services; 38 states
implemented cost containment initiatives in the area of prescription
drugs; and 18 states implemented utilization controls on long-term
care services. According to NASBO, 23 states expect budget deficits
for fiscal year 2012, and 17 states anticipate budget gaps for fiscal
year 2013, presenting further challenges to funding Medicaid.
Recovery Act Funds Were More Responsive to State Medicaid Needs than
Previous Assistance:
Increased FMAP funds provided by the Recovery Act were better timed
and targeted for state Medicaid needs than were funds provided
following the 2001 national recession. Overall, the Recovery Act funds
were timed for state Medicaid needs because assistance began during
the 2007 national recession while nearly all states were experiencing
Medicaid enrollment increases and revenue decreases. The funds were
targeted for state Medicaid enrollment growth based on changes in
state unemployment rates, but assistance was not allocated on the
basis of a state's ability to generate revenue. As a result, the
increased FMAP funding did not reflect varying degrees of decreased
revenue that states had for maintaining Medicaid services. In
contrast, the increased FMAP funds for the 2001 recession were
provided well after the recession ended and not targeted on the basis
of need.
Recovery Act Assistance Was Timed to Meet State Medicaid Needs
Resulting from Enrollment Increases and Revenue Decreases:
The Recovery Act assistance provided to states was timed to meet state
Medicaid needs resulting from Medicaid enrollment increases and
revenue decreases, beginning midway through the 2007 national
recession. As shown in figure 4, the initial period of assistance
under the Recovery Act began approximately three quarters after the
December 2007 start of the recession, and continued for six quarters
beyond the June 2009 end of the recession.[Footnote 34] Although the
timing of state economic downturns varied,[Footnote 35] almost all
states were in an economic downturn during the period covered by the
increased FMAP, beginning in October 2008, and funds continued to be
available as state economies began to recover.
Figure 4: States in Economic Downturn during the 2007 Recession, by
Quarter:
[Refer to PDF for image: vertical bar graph]
Date: Q1-2007;
Number of states: 0.
Date: Q2-2007;
Number of states: 4.
Date: Q3-2007;
Number of states: 9.
NEBR recession: December 2007-June 2009.
Date: Q4-2007;
Number of states: 11.
Date: Q1-2008;
Number of states: 19.
Date: Q2-2008;
Number of states: 42.
Date: Q3-2008;
Number of states: 45.
Initial assistance period for increased FMAP: October 2008-December
2010.
Date: Q4-2008;
Number of states: 47.
Date: Q1-2009;
Number of states: 50.
Date: Q2-2009;
Number of states: 50.
Date: Q3-2009;
Number of states: 49.
Date: Q4-2009;
Number of states: 43.
Date: Q1-2010;
Number of states: 20.
Date: Q2-2010;
Number of states: 5.
Date: Q3-2010;
Number of states: 5.
Date: Q4-2010;
Number of states: 16.
Source: GAO analysis of Federal Reserve Bank of Philadelphia data.
Note: The National Bureau of Economic Research (NBER) recession period
was from December 2007 through June 2009. The increased Federal
Medical Assistance Percentage (FMAP) under the Recovery Act was
initially provided from October 2008 through December 2010, with an
extension through June 2011. Individual states were determined to be
in an economic downturn if their Coincident Index value had declined
from the prior quarter. State Coincident Indexes are published monthly
by the Federal Reserve Bank of Philadelphia.
[End of figure]
Although Recovery Act funds were provided during the period of
economic downturn in most states, states experienced their peak
Medicaid needs at different times during the 2007 recession.[Footnote
36] As shown in figure 5, the period of peak unemployment occurred
after the 2007 recession in most states; however, no state experienced
a peak in unemployment prior to the receipt of Recovery Act funds.
Almost all states experienced declining wages and salaries during or
following the 2007 national recession, and the period of increased
FMAP assistance included the lowest point of total wages and salaries
in most states.
Figure 5: States' Peak Quarter of Unemployment and Lowest Quarter of
Wages and Salaries during the 2007 National Recession:
[Refer to PDF for image: vertical bar graph]
Number of states:
NBER recession: December 2007-June 2009.
Date: Q4-2007;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 0.
Date: Q1-2008;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 0.
Date: Q2-2008;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 0.
Date: Q3-2008;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 0.
Initial assistance period for increased FMAP: December 2008-December
2010.
Date: Q4-2008;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 0.
Date: Q1-2009;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 12.
Date: Q2-2009;
Peak Unemployment Rate Quarter: 7;
Low Total Wages and Salaries Quarter: 5.
Date: Q3-2009;
Peak Unemployment Rate Quarter: 6;
Low Total Wages and Salaries Quarter: 9.
Date: Q4-2009;
Peak Unemployment Rate Quarter: 4;
Low Total Wages and Salaries Quarter: 5.
Date: Q1-2010;
Peak Unemployment Rate Quarter: 25;
Low Total Wages and Salaries Quarter: 14.
Date: Q2-2010;
Peak Unemployment Rate Quarter: 2;
Low Total Wages and Salaries Quarter: 0.
Date: Q3-2010;
Peak Unemployment Rate Quarter: 7;
Low Total Wages and Salaries Quarter: 0.
Date: Q4-2010;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 0.
Source: GAO analysis of Bureau of Labor Statistics and Bureau of
Economic Analysis data.
Notes: The National Bureau of Economic Research (NBER) recession
period was from December 2007 through June 2009. The increased Federal
Medical Assistance Percentage (FMAP) under the Recovery Act was
initially provided from October 2008 through December 2010, with an
extension through June 2011.
Figure includes 50 states and the District of Columbia with rising
unemployment after the start of the recession. It includes 45 states
with declining wages and salaries after the start of the recession; 5
states and the District of Columbia did not experience a decline in
total wages and salaries. Analysis includes data through the 3rd
quarter of 2010. Data beyond this period were not available at the
time of our analysis.
[End of figure]
Recovery Act Funds Were Targeted to Increased Medicaid Enrollment, but
Not to State Revenue Decreases:
The increased FMAP funds provided by the Recovery Act were targeted
for increases in states' unemployment, but did not target the varying
degrees of state revenue decreases that occurred during the 2007
recession. Furthermore, some provisions of the Recovery Act--such as
the across-the-board FMAP increase--were not targeted, and states with
higher regular FMAPs received a greater increase in funding.[Footnote
37]
The increased FMAP funds included a factor for changes in unemployment
as a proxy for targeting changes in Medicaid enrollment. As a result,
changes in state Medicaid shares based on the unemployment component
of the increased FMAP formula were strongly correlated with changes in
state unemployment rates.[Footnote 38] States with a greater increase
in unemployment received a greater reduction in their share of
Medicaid. Figure 6 reflects the three tiers of state assistance
provided by the Recovery Act based on different levels of unemployment
growth.
Figure 6: Change in Unemployment Rate and Percent Change in State
Medicaid Share by State, Recovery Act, Quarter 4 (July-September 2009--
Unemployment Component Only:
[Refer to PDF for image: plotted point graph with line indicating
trend]
Percent decline in state Medicare share: 4.9;
Percentage point increase in unemployment rate: 2.2.
Percent decline in state Medicare share: 10.4;
Percentage point increase in unemployment rate: 6.3.
Percent decline in state Medicare share: 4.9;
Percentage point increase in unemployment rate: 2.1.
Percent decline in state Medicare share: 10.3;
Percentage point increase in unemployment rate: 4.6.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 6.6.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 3.9.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 3.5.
Percent decline in state Medicare share: 10.3;
Percentage point increase in unemployment rate: 5.1.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 4.7.
Percent decline in state Medicare share: 10.3;
Percentage point increase in unemployment rate: 6.9.
Percent decline in state Medicare share: 10.5;
Percentage point increase in unemployment rate: 5.3.
Percent decline in state Medicare share: 10.4;
Percentage point increase in unemployment rate: 5.
Percent decline in state Medicare share: 5.1;
Percentage point increase in unemployment rate: 1.9.
Percent decline in state Medicare share: 10.3;
Percentage point increase in unemployment rate: 4.9.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 5.5.
Percent decline in state Medicare share: 10.5;
Percentage point increase in unemployment rate: 6.
Percent decline in state Medicare share: 7.8;
Percentage point increase in unemployment rate: 2.8.
Percent decline in state Medicare share: 10.3;
Percentage point increase in unemployment rate: 5.1.
Percent decline in state Medicare share: 7.2;
Percentage point increase in unemployment rate: 3.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 3.9.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 3.7.
Percent decline in state Medicare share: 10.5;
Percentage point increase in unemployment rate: 3.9.
Percent decline in state Medicare share: 10.6;
Percentage point increase in unemployment rate: 7.4.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 4.3.
Percent decline in state Medicare share: 10.5;
Percentage point increase in unemployment rate: 4.1.
Percent decline in state Medicare share: 7.2;
Percentage point increase in unemployment rate: 3.3.
Percent decline in state Medicare share: 7.5;
Percentage point increase in unemployment rate: 3.
Percent decline in state Medicare share: 10.5;
Percentage point increase in unemployment rate: 6.4.
Percent decline in state Medicare share: 0;
Percentage point increase in unemployment rate: 1.2.
Percent decline in state Medicare share: 5.1;
Percentage point increase in unemployment rate: 2.
Percent decline in state Medicare share: 8;
Percentage point increase in unemployment rate: 3.2.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 4.6.
Percent decline in state Medicare share: 7.6;
Percentage point increase in unemployment rate: 2.9.
Percent decline in state Medicare share: 10.2;
Percentage point increase in unemployment rate: 7.1.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 3.9.
Percent decline in state Medicare share: 10.6;
Percentage point increase in unemployment rate: 5.4.
Percent decline in state Medicare share: 7.4;
Percentage point increase in unemployment rate: 3.
Percent decline in state Medicare share: 10.5;
Percentage point increase in unemployment rate: 7.
Percent decline in state Medicare share: 10.7;
Percentage point increase in unemployment rate: 3.8.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 7.1.
Percent decline in state Medicare share: 10.3;
Percentage point increase in unemployment rate: 6.3.
Percent decline in state Medicare share: 5;
Percentage point increase in unemployment rate: 2.3.
Percent decline in state Medicare share: 10.5;
Percentage point increase in unemployment rate: 6.
Percent decline in state Medicare share: 7.6;
Percentage point increase in unemployment rate: 2.7.
Percent decline in state Medicare share: 7.3;
Percentage point increase in unemployment rate: 2.9.
Percent decline in state Medicare share: 10.8;
Percentage point increase in unemployment rate: 4.2.
Percent decline in state Medicare share: 10.6;
Percentage point increase in unemployment rate: 3.8.
Percent decline in state Medicare share: 10.6;
Percentage point increase in unemployment rate: 4.7.
Percent decline in state Medicare share: 10.6;
Percentage point increase in unemployment rate: 4.4.
Percent decline in state Medicare share: 9.9;
Percentage point increase in unemployment rate: 4.2.
Percent decline in state Medicare share: 5.2;
Percentage point increase in unemployment rate: 2.4.
Source: GAO analysis of Federal Funds Information for States data
Notes: The unemployment and Federal Medical Assistance Percentage
(FMAP) data are from Federal Funds Information for States.
This analysis includes only the unemployment-based component of the
Recovery Act's increased FMAP formula. The figure shows the percent
decline in the state share of Medicaid for varying levels of
unemployment increase. Changes in state Medicaid shares based solely
on changes in unemployment were strongly correlated with changes in
state unemployment rates, r=0.74.
The Recovery Act formula had three levels of unemployment-based
assistance. States with an increase in unemployment of at least 1.5
but less than 2.5 percentage points received a 5.5 percent reduction
in their adjusted state share of Medicaid--that is, the state share of
Medicaid after taking into account the hold harmless-provision and
half the across-the-board increase. States with an increase in
unemployment of at least 2.5 but less than 3.5 percentage points
received an 8.5 percent reduction in their adjusted state share; and
states with an increase in unemployment of 3.5 percentage points or
greater received an 11.5 percent reduction in their adjusted state
share. During the fourth quarter of the Recovery Act (July-September
2009), these unemployment-based increases resulted in an average FMAP
increase of 3.72 percentage points, and ranged from a low of 0.00 in
North Dakota to as high as 5.39 in several states.
[End of figure]
However, reductions in state Medicaid shares produced by the overall
increased FMAP formula--including the hold-harmless provision, which
prohibited decreases in the regular FMAP, and across-the-board
increases--were only slightly correlated with increased state Medicaid
enrollment as represented by rising unemployment rates.[Footnote 39]
As shown in figure 7, states with a greater increase in unemployment
generally received a larger reduction in their state Medicaid share,
but the relationship was not as strong as it was for the unemployment
component only.
Figure 7: Change in Unemployment Rate and Percent Change in State
Medicaid Share by State, Recovery Act, Quarter 4 (July-September 2009):
[Refer to PDF for image: plotted point graph with line indicating
trend]
Percent decline in state Medicare share: 23.2;
Percentage point increase in unemployment rate: 6.6.
Percent decline in state Medicare share: 23.2;
Percentage point increase in unemployment rate: 3.9.
Percent decline in state Medicare share: 23.2;
Percentage point increase in unemployment rate: 3.5.
Percent decline in state Medicare share: 23.2;
Percentage point increase in unemployment rate: 4.7.
Percent decline in state Medicare share: 23.2;
Percentage point increase in unemployment rate: 3.9.
Percent decline in state Medicare share: 23.2;
Percentage point increase in unemployment rate: 3.7.
Percent decline in state Medicare share: 23.2;
Percentage point increase in unemployment rate: 4.3.
Percent decline in state Medicare share: 20.4;
Percentage point increase in unemployment rate: 3.2.
Percent decline in state Medicare share: 23.2;
Percentage point increase in unemployment rate: 4.6.
Percent decline in state Medicare share: 27.9;
Percentage point increase in unemployment rate: 7.1.
Percent decline in state Medicare share: 23.2;
Percentage point increase in unemployment rate: 3.9.
Percent decline in state Medicare share: 23.2;
Percentage point increase in unemployment rate: 4.2.
Percent decline in state Medicare share: 17.6;
Percentage point increase in unemployment rate: 2.4.
Percent decline in state Medicare share: 23.3;
Percentage point increase in unemployment rate: 5.5.
Percent decline in state Medicare share: 21.4;
Percentage point increase in unemployment rate: 2.2.
Percent decline in state Medicare share: 24.5;
Percentage point increase in unemployment rate: 4.7.
Percent decline in state Medicare share: 23.8;
Percentage point increase in unemployment rate: 7.1.
Percent decline in state Medicare share: 24.3;
Percentage point increase in unemployment rate: 3.8.
Percent decline in state Medicare share: 27.3;
Percentage point increase in unemployment rate: 5.
Percent decline in state Medicare share: 27.4;
Percentage point increase in unemployment rate: 6.9.
Percent decline in state Medicare share: 25.9;
Percentage point increase in unemployment rate: 4.4.
Percent decline in state Medicare share: 25.7;
Percentage point increase in unemployment rate: 2.7.
Percent decline in state Medicare share: 25.9;
Percentage point increase in unemployment rate: 3.8.
Percent decline in state Medicare share: 20.4;
Percentage point increase in unemployment rate: 2.
Percent decline in state Medicare share: 23.4;
Percentage point increase in unemployment rate: 2.8.
Percent decline in state Medicare share: 26.2;
Percentage point increase in unemployment rate: 7.4.
Percent decline in state Medicare share: 26.9;
Percentage point increase in unemployment rate: 5.4.
Percent decline in state Medicare share: 27.1;
Percentage point increase in unemployment rate: 7.
Percent decline in state Medicare share: 21.6;
Percentage point increase in unemployment rate: 2.3.
Percent decline in state Medicare share: 21.6;
Percentage point increase in unemployment rate: 1.9.
Percent decline in state Medicare share: 18.5;
Percentage point increase in unemployment rate: 1.2.
Percent decline in state Medicare share: 27.4;
Percentage point increase in unemployment rate: 4.1.
Percent decline in state Medicare share: 27.8;
Percentage point increase in unemployment rate: 6.
Percent decline in state Medicare share: 27.9;
Percentage point increase in unemployment rate: 6.
Percent decline in state Medicare share: 27.9;
Percentage point increase in unemployment rate: 3.9.
Percent decline in state Medicare share: 28;
Percentage point increase in unemployment rate: 5.3.
Percent decline in state Medicare share: 28;
Percentage point increase in unemployment rate: 6.4.
Percent decline in state Medicare share: 29.7;
Percentage point increase in unemployment rate: 4.6.
Percent decline in state Medicare share: 29.1;
Percentage point increase in unemployment rate: 3.
Percent decline in state Medicare share: 29.8;
Percentage point increase in unemployment rate: 6.3.
Percent decline in state Medicare share: 28.5;
Percentage point increase in unemployment rate: 3.
Percent decline in state Medicare share: 31.1;
Percentage point increase in unemployment rate: 4.9.
Percent decline in state Medicare share: 31;
Percentage point increase in unemployment rate: 5.1.
Percent decline in state Medicare share: 31;
Percentage point increase in unemployment rate: 6.3.
Percent decline in state Medicare share: 31.1;
Percentage point increase in unemployment rate: 5.1.
Percent decline in state Medicare share: 31.6;
Percentage point increase in unemployment rate: 2.9.
Percent decline in state Medicare share: 29.4;
Percentage point increase in unemployment rate: 2.9.
Percent decline in state Medicare share: 32.9;
Percentage point increase in unemployment rate: 3.
Percent decline in state Medicare share: 28.1;
Percentage point increase in unemployment rate: 2.1.
Percent decline in state Medicare share: 35.5;
Percentage point increase in unemployment rate: 4.2.
Percent decline in state Medicare share: 34.8;
Percentage point increase in unemployment rate: 3.3.
Source: GAO analysis of Federal Funds Information for States data.
Note: The unemployment and Federal Medical Assistance Percentage
(FMAP) data are from Federal Funds Information for States.
This analysis includes all three components of the Recovery Act
increased FMAP: (i) the hold-harmless provision, (ii) the across-the-
board 6.2 percentage point increase, and (iii) the additional
unemployment-based increase. Changes in state Medicaid shares during
the fourth quarter of the Recovery Act (July-September 2009) were
slightly correlated with changes in state unemployment rates, r=0.30.
[End of figure]
Although Recovery Act funds were targeted for increases in state
Medicaid enrollment, they were not targeted to reflect varying degrees
of revenue decreases among states. Therefore, the Recovery Act did not
distinguish among states with varying degrees of reduced revenue
capacity in the allocation of assistance. For example, during the
fourth quarter of assistance under the Recovery Act, there was no
relationship between reductions in the state share of Medicaid
expenditures and decreases in state revenue as indicated by declines
in state wages and salaries.[Footnote 40]
The largest share of total assistance under the Recovery Act--the
across-the-board 6.2 percentage point FMAP increase--was not targeted
for variable state Medicaid needs.[Footnote 41] As a result, state
Medicaid shares were reduced more in high FMAP states than low FMAP
states. For example, a 6.2 percentage point FMAP increase results in a
12.4 percent reduction in the state share of Medicaid in a state with
a low FMAP of 50.00 percent. However, the same 6.2 percentage point
increase produces a 24.8 percent reduction in the state share of
Medicaid in a state with a high FMAP of 75.00. While there was a
strong correlation between reductions in state Medicaid shares and
rising unemployment among low FMAP states, there was no correlation
among high FMAP states.[Footnote 42] As a result, some states with
similar changes in unemployment had widely varying reductions in their
state share of Medicaid. For example, during the fourth quarter of
assistance under the Recovery Act, West Virginia had a 4.2 percentage
point increase in unemployment and a 35.5 percent decline in state
share of Medicaid, while Virginia had an identical 4.2 percentage
point increase in unemployment, but a 23.2 percent decline in state
share.[Footnote 43] The effect of the across-the-board increase was
particularly evident with respect to state revenue decreases as
represented by declines in wages and salaries. As a group, during the
fourth quarter of assistance under the Recovery Act, the low FMAP
states had a greater reduction in total wages and salaries than high
FMAP states, yet they received a smaller reduction in their share of
Medicaid.[Footnote 44]
Assistance Was Provided after the 2001 Recession Ended and Not
Targeted Based on Need:
The assistance following the 2001 recession was provided approximately
six quarters after the recession ended and not targeted based on state
Medicaid needs. The five-quarter period of increased FMAP assistance
provided following the 2001 recession began well after the three-
quarter recession and after the period of economic downturn when most
states were in recovery. (See figure 8.) Increased FMAP assistance
began in April 2003, eight quarters after the March 2001 start of the
national recession, and six quarters after the November 2001 end of
the recession.
Figure 8: States in Economic Downturn during the 2001 Recession, by
Quarter:
[Refer to PDF for image: vertical bar graph]
Date: Q2-1999;
Number of states: 2.
Date: Q3-1999;
Number of states: 1.
Date: Q4-1999;
Number of states: 0.
Date: Q1-2000;
Number of states: 0.
Date: Q2-2000;
Number of states: 1.
Date: Q3-2000;
Number of states: 10.
Date: Q4-2000;
Number of states: 8.
NEBR recession: March 2001-November 2001.
Date: Q1-2001;
Number of states: 14.
Date: Q2-2001;
Number of states: 32.
Date: Q3-2001;
Number of states: 41.
Date: Q4-2001;
Number of states: 43.
Date: Q1-2002;
Number of states: 35.
Date: Q2-2002;
Number of states: 20.
Date: Q3-2002;
Number of states: 14.
Date: Q4-2002;
Number of states: 27.
Date: Q1-2003;
Number of states: 29.
Assistance period for increased FMAP: April 2003-June 2004.
Date: Q2-2003;
Number of states: 19.
Date: Q3-2003;
Number of states: 5.
Date: Q4-2003;
Number of states: 0.
Date: Q1-2004;
Number of states: 0.
Date: Q2-2004;
Number of states: 2.
Date: Q3-2004;
Number of states: 1.
Date: Q4-2004;
Number of states: 1.
Source: GAO analysis of Federal Reserve Bank of Philadelphia data.
Note: The National Bureau of Economic Research (NBER) recession period
was from March through November 2001. The increased Federal Medical
Assistance Percentage (FMAP) was provided from April 2003 through June
2004. Individual states were determined to be in an economic downturn
if their Coincident Index value had declined from the prior quarter.
State Coincident Indexes are published monthly by the Federal Reserve
Bank of Philadelphia.
[End of figure]
Although the increased FMAP following the 2001 recession coincided
with states' needs due to increased Medicaid enrollment, it was not
timed to assist states in responding to decreased revenues as
indicated by lower total wages and salaries. As shown in figure 9, the
period of increased FMAP assistance included the period of peak
unemployment in most states, but it trailed states' lowest point of
total wages and salaries by at least six quarters.
Figure 9: States' Peak Quarter of Unemployment and Low Quarter of
Wages and Salaries during the 2001 National Recession:
[Refer to PDF for image]
Number of states:
NBER recession: March 2001-November 2001.
Date: Q1-2001;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 0.
Date: Q2-2001;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 6.
Date: Q3-2001;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 11.
Date: Q4-2001;
Peak Unemployment Rate Quarter: 2;
Low Total Wages and Salaries Quarter: 9.
Date: Q1-2002;
Peak Unemployment Rate Quarter: 3;
Low Total Wages and Salaries Quarter: 3.
Date: Q2-2002;
Peak Unemployment Rate Quarter: 2;
Low Total Wages and Salaries Quarter: 0.
Date: Q3-2002;
Peak Unemployment Rate Quarter: 4;
Low Total Wages and Salaries Quarter: 0.
Date: Q4-2002;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 1.
Date: Q1-2003;
Peak Unemployment Rate Quarter: 2;
Low Total Wages and Salaries Quarter: 1.
Assistance period for increased FMAP: April 2003-June 2004.
Date: Q2-2003;
Peak Unemployment Rate Quarter: 15;
Low Total Wages and Salaries Quarter: 0.
Date: Q3-2003;
Peak Unemployment Rate Quarter: 20;
Low Total Wages and Salaries Quarter: 0.
Date: Q4-2003;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 0.
Date: Q1-2004;
Peak Unemployment Rate Quarter: 0;
Low Total Wages and Salaries Quarter: 0.
Date: Q2-2004;
Peak Unemployment Rate Quarter: 2;
Low Total Wages and Salaries Quarter: 0.
Source: GAO analysis of Bureau of Labor Statistics and Bureau of
Economic Analysis data.
Notes: The National Bureau of Economic Research (NBER) recession
period was from March through November 2001. The increased Federal
Medical Assistance Percentage (FMAP) was provided from April 2003
through June 2004.
Figure includes 49 states and the District of Columbia with rising
unemployment after the start of the recession; 1 state did not
experience a rise in unemployment after the start of the recession. It
includes 31 states with declining wages and salaries after the start
of the recession; 19 states and the District of Columbia did not
experience a decline in total wages and salaries.
[End of figure]
The increased FMAP provided following the 2001 recession was not
targeted for variable state needs because it relied on an across-the-
board FMAP increase for states and a hold-harmless provision.[Footnote
45]
Past Recessions Offer Insights on Improving the Responsiveness of FMAP
Adjustments:
States' experiences with past recessions offer insights for improving
the responsiveness of FMAP adjustments. In particular, mechanisms that
(1) improve the timing for starting assistance, (2) taper off the end
of assistance, and (3) better target for state needs can provide a
more responsive increased FMAP. More responsive assistance can aid
states in addressing increased Medicaid enrollment resulting from a
national recession, as well as addressing reductions in states'
revenues. Our 2006 report provided a prototype formula for an
increased FMAP that addressed increased Medicaid enrollment, but did
not address states' revenue losses.[Footnote 46] We have revised our
2006 prototype formula in several ways to further improve its
responsiveness. Table 2 summarizes and compares the design options
from our 2006 report with our proposed revisions and the purpose of
the changes.
Table 2: Revised Prototype Formula and Purpose of Revision, by Key
Design Decision:
Key design decision: Starting point;
Prototype (2006): The starting point, or automatic trigger, would be a
threshold number of states showing an increase in quarterly state
unemployment rate above a certain level. Once the threshold was
reached and assistance had begun for those states, any state with any
increase in unemployment would be eligible to receive assistance;
Revised prototype: Revised prototype would change the type of data and
the threshold of states used in the automatic trigger. The automatic
trigger would be a threshold number of states that show a decrease in
quarterly employment-to-population ratio.[A] The revision could
provide two quarters of retroactive assistance after triggering;
Purpose of revision: Shifting from changes in unemployment to the
employment-to-population ratio could provide assistance to states
earlier. Retroactive assistance limits concerns about the timeliness
of the trigger by assuring states that assistance will be provided,
even though delayed.
Key design decision: Ending point;
Prototype (2006): Assistance would end when the number of states
showing an increase in unemployment rate declined below a
predetermined threshold;
Revised prototype: The end of assistance could be set by a number of
states showing recovery, but could be adjusted based on economic
conditions. Once the ending point has been reached, a targeted
phaseout of assistance would begin;
Purpose of revision: An endpoint would be established, but would also
provide the federal government with the opportunity to extend the
assistance based on certain factors such as the current economic
conditions. Phasing out assistance avoids abrupt changes, thus
enabling state governments to plan their transitions back to greater
reliance on their own revenues.
Key design decision: Targeting assistance;
Prototype (2006): Funds would be distributed quarterly through a
targeted supplement to states' federal matching rates. Funds would be
targeted to Medicaid needs due to growing enrollments. Distribution
amounts would vary based on a state's increase in unemployment and its
average cost of providing services to children and nondisabled,
nonelderly adults;
Revised prototype: Would add a second component that targets
additional assistance to states based on their losses in wages and
salaries (as a proxy for the losses in revenues needed to maintain the
funding of their Medicaid services);
Purpose of revision: The second component helps states with revenue
losses that occur as a result of the downturn. Assistance targeted to
states with the greatest Medicaid needs is most likely to help with
macroeconomic objectives. States with the highest Medicaid needs
(i.e., increases in unemployment and losses in wages and salaries) are
most likely to use the assistance in ways that add to the nation's
aggregate demand, while states with the lowest needs are least likely
to use the assistance in ways that would add to aggregate demand.
Source: GAO.
[A] The employment-to-population ratio is the ratio of the number of
employed persons to the population age 16 or older. The source of
these monthly data by state is the Bureau of Labor Statistics.
[End of table]
Starting Increased FMAP Assistance Closer to Onset of Recession Could
Help States Avoid Program Cuts:
Although the Recovery Act assistance timing was an improvement over
the assistance for the 2001 recession, an automatic trigger (a
provision that would start the assistance program without the need for
legislation)[Footnote 47] that would provide an increased FMAP to
states close to the onset of an NBER-designated recession has
additional advantages.[Footnote 48] Providing assistance earlier than
that provided under the Recovery Act could have assured states of a
federal response if the national economy weakened. This would
particularly benefit states that begin an economic downturn before a
national recession.[Footnote 49] Additionally, from a macroeconomic
perspective, it is likely to be more effective to provide temporary
assistance--such as that offered by an increased FMAP--when the
economy is just beginning its downturn rather than later when the
effects of recession are more widespread and the economy has greater
downward momentum.[Footnote 50] When states face an uncertain economic
outlook, their awareness that the trigger is there may forestall tax
increases or cuts in services because states know that increased
assistance will begin if economic conditions continue to worsen. (In
other words, because states can anticipate assistance, the assistance
does not need to be received or "in the pipeline" in order to produce
the desired effect on state fiscal behavior.)
Our 2006 report suggested a prototype formula for triggering and
targeting an increased FMAP that was based on increases in
unemployment. Although unemployment increases in many states typically
lag behind the onset of a national recession, our prototype formula
considered that states had budget resources and financial management
techniques to temporarily sustain them for a year or two with downturn-
driven increases in Medicaid expenditures. However, the additional
objective of responding to state revenue losses makes a more timely
response preferable. Other measures, such as the decrease in states'
employment-to-population ratio, could improve the timing and hasten
the provision of assistance to states during a national
recession.[Footnote 51] A trigger based on a change to this ratio
could further mitigate the lag time by including two quarters of
retroactive funds, similar to that provided in the Recovery Act. If
targeted assistance was triggered earlier, the overall amount of
increased FMAP assistance would initially be smaller, as most states
show greater funding needs a number of quarters after the onset of a
national recession, when the results of economic downturns--increases
in unemployment and decreases in revenue--are more widespread.
Determining When to End Assistance Is Complicated by States'
Continuing Medicaid Funding Needs:
Determining when to end increased FMAP assistance to states is
complicated by states' continuing Medicaid funding needs. In our 2006
report, the increased FMAP prototype stopped assistance abruptly once
a threshold of states no longer showed increases in unemployment.
[Footnote 52] This approach did not allow states time to transition
their Medicaid programs back to their regular federal matching rates.
[Footnote 53] As we noted earlier, increased Medicaid enrollment and
decreased revenue continued after both the 2001 and 2007 recessions
ended. Adding several quarters of transitional assistance and
gradually reducing the percentage of increased FMAP provided could
help mitigate the effects of a slower recovery. Phaseout assistance
such as this could be targeted to states that have weaker economies
and face larger losses.[Footnote 54] However, any transitional rule
for terminating assistance will be subject to complex considerations,
including assessing the competing demands for federal resources and
states' ability to cope with their economic conditions without further
federal aid. As a result, any transitional rule is likely to require
several options for proceeding that are based on several factors,
including economic circumstances and congressional decision making.
Accounting for Medicaid Enrollment Increases as Well as State Revenue
Losses Could Further Improve Targeting:
States' efforts to fund Medicaid during an economic downturn have two
main challenges: (1) financing increased enrollment, and (2) replacing
revenues lost as a result of the recession. In our 2006 report, the
prototype formula accounted for the increases in enrollment, but did
not provide for states' revenue losses. A more responsive increased
FMAP would calculate the increased funding needed on the basis of the
economic conditions of each state. To consider both increased
enrollment and decreased revenue, quarterly increases in each state's
unemployment and decreases in real wages and salaries could be
calculated and used together as the basis for targeting funds. Such an
approach would target assistance to the states with the greatest
economic declines. States could then receive funding based on two
formula components:
* each state's increase in unemployment, as a proxy for an increase in
Medicaid enrollment; and:
* each state's decrease in wages and salaries, as a proxy for the loss
of revenue.[Footnote 55]
Improving targeting is essential to meet the goals of providing
assistance to states in an efficient and effective manner. Without
specific measures of states' needs, federal funds could be distributed
inequitably and run counter to the goals of providing assistance
during a recession. A formula with finely graduated adjustments to
assistance can be an efficient:
mechanism for providing support to states. States that do not yet show
increases in unemployment and decreases in wages and salaries would
not receive assistance until changes in these measures indicated an
economic downturn. For states with rapidly improving economies that
show large decreases in unemployment and increases in wages and
salaries, the quarterly assistance could be phased out to ease the
transition for their Medicaid programs.
Agency Comments and Our Evaluation:
In commenting on a draft of this report, the Department of Health and
Human Services stated that it agreed with the analysis and goals of
the report while emphasizing that any changes to the FMAP formula must
be authorized by statute and implemented by the Assistant Secretary
for Planning and Evaluation in HHS. The department further stated its
belief that it is critical to as closely as possible align changes in
the FMAP formula to individual state circumstances in order to avoid
unintended consequences for beneficiaries as well as provide budget
planning stability for states. We agree that statutory changes would
be necessary to implement any adjustments to the FMAP, but we do not
make recommendations regarding particular actions in this report. The
full text of HHS's comments can be found in appendix II. HHS also
provided technical comments, which we incorporated as appropriate
throughout this report.
We are sending copies of this report to the Secretary of HHS, the
Administrator of the Centers for Medicare & Medicaid Services, and
other interested parties. In addition, the report will be available at
no charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have questions about this report, please contact
Thomas J. McCool at (202) 512-2642 or mccoolt@gao.gov or Carolyn L.
Yocom at (202) 512-7114 or yocomc@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report major contributors to this report are
listed in appendix III.
Signed by:
Thomas J. McCool:
Director, Center for Economics:
Signed by:
Carolyn L. Yocom:
Acting Director, Health Care:
List of Committees:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Vice Chairman:
Committee on Appropriations:
United States Senate:
The Honorable Max Baucus:
Chairman:
The Honorable Orrin G. Hatch:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable Joseph I. Lieberman:
Chairman:
The Honorable Susan M. Collins:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Harold Rogers:
Chairman:
The Honorable Norman D. Dicks:
Ranking Member:
Committee on Appropriations:
House of Representatives:
The Honorable Fred Upton:
Chairman:
The Honorable Henry A. Waxman:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Darrell Issa:
Chairman:
The Honorable Elijah E. Cummings:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives:
[End of section]
Appendix I: Children's Health Insurance and Other Publicly Funded
Health Programs:
In addition to examining the effect of past economic downturns,
including of temporary increases in the Federal Medical Assistance
Percentage (FMAP), the American Recovery and Reinvestment Act
(Recovery Act) mandated GAO to examine the effect of past economic
downturns on the state Children's Health Insurance Program
(CHIP),[Footnote 56] and other publicly funded programs that provide
health benefits coverage to state residents.[Footnote 57]
Program Descriptions:
In 1997, Congress created CHIP, a federal-state health care program
providing coverage for uninsured children in families with incomes
that are too high to qualify for Medicaid.[Footnote 58] States can
design and operate their CHIP programs as an expansion of their
Medicaid program, as a separate program, or as a combination of the
two approaches. CHIP is based on federally funded allotments for each
state that are subject to reauthorization by Congress. CHIP provides a
strong incentive for states to participate because the federal
government pays an "enhanced" federal matching rate that is derived
from a state's FMAP.[Footnote 59] The Children's Health Insurance
Program Reauthorization Act of 2009 (CHIPRA) extended federal funding
for CHIP through federal fiscal year 2013.[Footnote 60] Patient
Protection and Affordable Care Act (PPACA) further extended federal
CHIP funding through fiscal year 2015 and provided for an increase in
the enhanced FMAP for CHIP beginning in fiscal year 2016. Since its
inception in 1997, CHIP enrollment has steadily increased from 660,000
in 1998, to 7.7 million in 2010. (See figure 10 for CHIP enrollment
trends.)
Figure 10: Total Enrollment in the Children's Health Insurance Program
(CHIP):
[Refer to PDF for image: vertical bar graph]
Fiscal year: 1998;
Total enrollment: 0.7 million.
Fiscal year: 1999;
Total enrollment: 2 million.
Fiscal year: 2000;
Total enrollment: 3.4 million.
Fiscal year: 2001;
Total enrollment: 4.6 million.
Fiscal year: 2002;
Total enrollment: 5.3 million.
Fiscal year: 2003;
Total enrollment: 6 million.
Fiscal year: 2004;
Total enrollment: 6.1 million.
Fiscal year: 2005;
Total enrollment: 6.2 million.
Fiscal year: 2006;
Total enrollment: 6.7 million.
Fiscal year: 2007;
Total enrollment: 7.1 million.
Fiscal year: 2008;
Total enrollment: 7.4 million.
Fiscal year: 2009;
Total enrollment: 7.7 million.
Fiscal year: 2010;
Total enrollment: 7.7 million.
Source: Centers for Medicare & Medicaid Services.
Note: Data are from the Centers for Medicare & Medicaid Services' CHIP
Statistical Enrollment Data System (Feb. 1, 2011). Total enrollment
represents the number of children enrolled for all or some portion of
the year in a separate CHIP program or a CHIP Medicaid expansion.
[End of figure]
States differ in the types and number of other publicly funded health
programs they provide beyond Medicaid and CHIP. Categories of state
spending include pharmaceutical assistance programs; population health
expenditures, such as environmental health; public health
surveillance;[Footnote 61] the promotion of healthy behavior; disaster
preparedness and response; community-based services, such as
rehabilitation services, and alcohol and drug abuse treatment; mental
health community services; and developmental and vocational services.
In addition, states provide health care to state employees and
residents of correctional facilities. These discretionary programs are
often funded by state general fund dollars, which are affected by
fluctuations in state revenue.
CHIP and other publicly funded programs constitute a small percentage
of overall state health expenditures. According to 2003 data from the
National Association of State Budget Officers (NASBO),[Footnote 62] on
average, Medicaid constituted 71 percent of state health spending,
CHIP 1.7 percent, and other publicly funded health expenditures
constituted 16.2 percent.[Footnote 63] The approximately 11 percent of
expenditures remaining included health care for state employees,
residents of correctional facilities, and support for state university-
based teaching hospitals. (See table 3 for the percentage of health
program expenditures in sample states.)
Table 3: Selected States' Percentage of State Expenditures on Health
Care by Program, 2002-2003:
Category based on state spending on health care: Highest states[A]:
State: New York;
Percentage of state budget spent on health care: 45.5;
Percentage of expenditures: Medicaid: 34.6;
Percentage of expenditures: CHIP: 0.8;
Percentage of expenditures: All other health programs: 10.1.
State: Missouri;
Percentage of state budget spent on health care: 41.2;
Percentage of expenditures: Medicaid: 31.4;
Percentage of expenditures: CHIP: 0.5;
Percentage of expenditures: All other health programs: 9.3.
State: Texas;
Percentage of state budget spent on health care: 41.1;
Percentage of expenditures: Medicaid: 25.2;
Percentage of expenditures: CHIP: 1.3;
Percentage of expenditures: All other health programs: 14.6.
State: Pennsylvania;
Percentage of state budget spent on health care: 39.6;
Percentage of expenditures: Medicaid: 29.3;
Percentage of expenditures: CHIP: 0.4;
Percentage of expenditures: All other health programs: 9.9.
State: Tennessee;
Percentage of state budget spent on health care: Lowest states[B]:
39.1;
Percentage of expenditures: Medicaid: Lowest states[B]: 32.9;
Percentage of expenditures: CHIP: Lowest states[B]: 0;
Percentage of expenditures: All other health programs: Lowest
states[B]: 6.2.
Category based on state spending on health care: Lowest states[B]:
State: Utah;
Percentage of state budget spent on health care: 18.5;
Percentage of expenditures: Medicaid: 13.1;
Percentage of expenditures: CHIP: 0.4;
Percentage of expenditures: All other health programs: 5.0.
State: Alaska;
Percentage of state budget spent on health care: 17.4;
Percentage of expenditures: Medicaid: 11.5;
Percentage of expenditures: CHIP: 0.4;
Percentage of expenditures: All other health programs: 5.5.
State: Wyoming;
Percentage of state budget spent on health care: 15.7;
Percentage of expenditures: Medicaid: 7.3;
Percentage of expenditures: CHIP: 0.1;
Percentage of expenditures: All other health programs: 8.3.
State: Wisconsin;
Percentage of state budget spent on health care: 15.3;
Percentage of expenditures: Medicaid: 11.2;
Percentage of expenditures: CHIP: 0.3;
Percentage of expenditures: All other health programs: 3.8.
State: West Virginia;
Percentage of state budget spent on health care: Percentage of state
budget spent on health care: 15.0;
Percentage of expenditures: Medicaid: Medicaid: 11.6;
Percentage of expenditures: CHIP: CHIP: 0.2;
Percentage of expenditures: All other health programs: All other
health programs: 3.2.
Source: GAO analysis of National Association of State Budget Officers
data.
Note: Data from the Millbank Memorial Fund, National Association of
State Budget Officers and the Reforming States Group: 2002-2003 State
Health Expenditure Report (New York, N. Y.: Millbank Memorial Fund,
2005).
[A] States with highest percentage of state budgets spent on health
care.
[B] States with the lowest percentage of state budgets spent on health
care.
[End of table]
Effects of the 2001 and 2007 Recessions on CHIP:
In response to the 2001 recession, states made different decisions
regarding their CHIP programs. For example, six states expanded their
CHIP programs, while seven states froze or capped their enrollment in
CHIP. Other states proposed cost-containment strategies for their CHIP
programs, such as reducing payments for health care providers,
eliminating benefits, and increasing the use of copayments and monthly
premiums.
Due to the 2007 recession, 13 states expanded eligibility for their
programs, and 14 states made changes in enrollment and renewal
procedures, such as accepting online applications or eliminating face-
to-face interviews for renewal.[Footnote 64] However, a number of
states reported reducing or freezing reimbursements to providers, or
increasing copayments and monthly premiums.[Footnote 65]
Effects of the 2001 and 2007 Recessions on Other Publicly Funded
Health Programs:
Decreases in tax revenues during the 2001 and 2007 recessions led most
states to cut or reduce coverage for many of their health programs.
For example, 14 states that operated a prescription drug program
responded to the 2001 economic downturn by proposing to reduce
dispensing fees, change reimbursement formulas, and implement a
maximum allowable cost for generic drugs to contain costs. Other
states addressed budget concerns by limiting enrollment in state-
funded health programs, increasing premiums for program participants,
and increasing copayments. In addition, states eliminated or reduced
coverage of low-income adults in three state-funded health programs;
cut services for people with chronic diseases who were rejected by
private insurance companies; and discontinued services for disabled
individuals.[Footnote 66]
The 2007 recession also created significant budget gaps for states,
which affected their health care programs. The National Conference of
State Legislatures reported that for fiscal year 2011, health programs
were over budget in 18 states.[Footnote 67] In November 2010, the
Center on Budget and Policy Priorities reported that 31 states enacted
cuts to public health services, and 29 states cut services to elderly
and disabled individuals.[Footnote 68] Examples of state health
program cuts included dental and vision care programs, maternal and
child health programs, health insurance for legal immigrants, and
prescription drug coverage to help seniors pay for drugs not covered
by Medicare's prescription drug benefit. In addition, other states
eliminated funding for their state-funded health insurance programs
for certain low-income parents and disabled adults.
[End of section]
Appendix II: Comments from the Department of Health and Human Services:
Department Of Health & Human Services:
Office of the Assistant Secretary for Legislation
Washington, D.C. 20201:
March 24, 2011:
Carolyn Yocom:
Acting Director, Health Care:
Thomas McCool:
Director, Applied Research and Methodology:
U.S. Government Accountability Office:
441 G Street N.W.
Washington, DC 20548:
Dear Ms. Yocom and Mr. McCool:
Attached are comments on the U.S. Government Accountability Office's
(GAO) correspondence entitled: "Medicaid: Improving Responsiveness of
Federal Assistance to States during Economic Downturns" (GA0-11-395).
The Department appreciates the opportunity to review this
correspondence before its publication.
Sincerely,
Signed by:
Jim R. Esquea:
Assistant Secretary for Legislation:
Attachment:
[End of letter]
General Comments Of The Department Of Health And Human
Services (HHS) On The Government Accountability Office's (GAO)
Draft Report Entitled, "Medicaid: Improving Responsiveness Of
Federal Assistance To States During Economic Downturns" (GAO-
11-395):
The Department appreciates the opportunity to comment on this draft
report. The purpose of the review was to analyze past national
economic downturns and the impact of the increased Federal Medical
Assistance Percentage (FMAP) on these downturns. The report compares
the effectiveness of the temporary FMAP increase in 2003-2004 in
response to the 2001 recession to more recent actions under the
American Recovery and Reinvestment Act of 2009 (Recovery Act) to
respond to the 2007 recession. The goal was to address the timing and
targeting of funds to further improve the responsiveness of any future
increased FMAP periods. One critical point made in the draft report is
the need to better align recessionary periods with an increase in FMAP
so that States can better plan their budgetary processes and avoid
unnecessary benefit or rate reductions.
In particular, while your report acknowledges that both periods of
increased FMAP were beneficial, the increased FMAP authorized under
the Recovery Act was more responsive to individual State Medicaid
needs. This increased responsiveness is attributable to several
factors, including that funds were provided during the recession while
almost all States were experiencing Medicaid enrollment increases
coupled with revenue decreases. In addition, unlike the 2003-2004
increased FMAP, the Recovery Act increased FMAP formula included
measuring the change in States' unemployment rates and adjusting the
increased FMAP accordingly, which better reflected increases in
Medicaid enrollment as a result of an individual State's economic
downturn.
Finally, this draft report suggests that future approaches should
consider individual State economic indicators to better monitor
increases in unemployment as proxies for increases in Medicaid
enrollment and to evaluate State decreases in wages and salaries to
proxy for loss of revenues to their general fluids. In addition, the
report recommends including the provision for automatic triggers so
that any increased FMAP funding can be made available as quickly as
possible to States at the onset of a recession.
Centers for Medicare & Medicaid Services' (CMS) Comments:
While CMS realizes that any changes to the FMAP formula must be
authorized by statute and are then further implemented by the
Assistant Secretary for Planning and Evaluation in the Department of
Health and Human Services, we agree with the analysis and goals of
this report. We believe it is critical to as closely as possible align
changes to the FMAP formula to individual State circumstances in order
to avoid unintended consequences for beneficiaries as well as provide
budget planning stability for States.
[End of section]
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Thomas J. McCool, (202) 512-2642 or mccoolt@gao.gov Carolyn L. Yocom,
(202) 512-7114 or yocomc@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, major contributors included
Robert Copeland, Assistant Director; Eric R. Anderson; Robert
Dinkelmeyer; Greg Dybalski; Anne Hopewell; Allison Liebhaber, Drew S.
Long; Victor J. Miller; Elizabeth T. Morrison; and Hemi Tewarson.
[End of section]
Footnotes:
[1] The gross domestic product (GDP) is the most comprehensive measure
of the value of the goods and services produced by the U.S. economy in
a given time period.
[2] For this report, we use recession to refer to national recessions
as defined by NBER. To determine when the nation is in a recession,
NBER examines and compares various measures of broad economic
activity, including GDP, economywide employment, and income.
[3] Bureau of Labor Statistics, December 2010.
[4] In this report, we use the term regular FMAP to refer to the base
FMAP, as defined under federal law, that is used to determine the
percentage of federal assistance for each state's Medicaid service
expenditures. The regular FMAP is determined annually by a statutory
formula designed to account for income variation across the states.
See 42 U.S.C. § 1396d(b). We use the term increased FMAP to refer to
temporary FMAP increases above the regular FMAP, as authorized under
federal law, that provided states with additional Medicaid funding
during national recessions.
[5] For fiscal year 2009, Medicaid averaged 17 percent of state
budgets, and total federal and state Medicaid expenditures were
approximately $374 billion.
[6] Pub. L. No. 108-27, § 401(a), 117 Stat. 752, 764 (2003). States
were protected against decreases in their regular FMAP and could be
eligible for an increased FMAP from April 1, 2003, through June 30,
2004.
[7] Pub. L. No. 111-5, Div. B, Tit. V, § 5001, 123 Stat. 115, 496
(2009). For example, the Recovery Act provided states with a flat
percentage point increase for their regular FMAP from October 1, 2008,
through December 31, 2010.
[8] Pub. L. No. 111-226, Tit. II, Subtit. A, § 201, 124 Stat. 2389,
2393 (2010). In this report, we also refer to this legislation as the
Education, Jobs, and Medicaid Assistance Act.
[9] Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010), as amended by
the Health Care and Education Reconciliation Act of 2010, Pub. L. No.
111-152, 124 Stat. 1029 (Mar. 30, 2010).
[10] Pub. L. No. 111-148, § 2001(a)(1), 124 Stat. 119, 271. The Census
Bureau defines the FPL using a set of thresholds that vary by family
size and composition. The bureau counts a family's income before taxes
and excludes capital gains and noncash benefits (such as public
housing, Medicaid, and food stamps). If a family's total income is
less than the threshold, then that family, and every individual in it,
is considered poor. In 2010, the FPL was about $22,000 for a family of
four.
[11] Medicaid enrollment estimates are from the CMS Office of the
Actuary. Centers for Medicare & Medicaid Services, Estimated Financial
Effects of the "Patient Protection and Affordable Care Act," as
Amended (Baltimore, Md., Apr. 22, 2010).
[12] GAO, Medicaid: Strategies to Help States Address Increased
Expenditures during Economic Downturns, [hyperlink,
http://www.gao.gov/products/GAO-07-97] (Washington, D.C.: Oct. 18,
2006).
[13] In this report, we use the phrase economic downturn to refer to
declining economic conditions of individual states that accompany the
declaration of national recessions.
[14] Pub. L. No. 111-5, Div. B, Tit. 5, § 5008, 123 Stat. 511. This
report focuses on state Medicaid programs during economic downturns.
The Recovery Act also mandated that we analyze the effect of past
national economic downturns on states with respect to maintenance and
growth of Medicaid, state Children's Health Insurance Program (CHIP)
and other publicly funded state health care programs. Compared to the
magnitude of the Medicaid program, CHIP and other state health program
expenditures represent a small portion of states' budgets. We have
included relevant information on CHIP and other publicly funded health
programs in appendix I.
[15] A second report discusses how state and local budgets are
affected during national recessions and strategies Congress should
consider when addressing state fiscal needs during future recessions.
See GAO, State and Local Governments: Knowledge of Past Recessions Can
Inform Future Federal Fiscal Assistance, [hyperlink,
http://www.gao.gov/products/GAO-11-401] (Washington, D.C.: March 31,
2011).
[16] These data were collected for prior work that we conducted. See
GAO, Recovery Act: Increased Medicaid Funds Aided Enrollment Growth,
and Most States Reported Taking Steps to Sustain Their Programs,
[hyperlink, http://www.gao.gov/products/GAO-11-58] (Washington, D.C.:
Oct. 8, 2010).
[17] The Federal Reserve Bank of Philadelphia's Coincident Indexes
combine four state-level indicators to summarize current economic
conditions into a single statistic. The four state-level variables are
nonfarm payroll employment, average hours worked in manufacturing, the
unemployment rate, and wage and salary disbursements deflated by the
U.S. city average of the consumer price index.
[18] M. Owyang, J. Piger, and H. Wall, "Business Cycle Phases in U.S.
States," The Review of Economics and Statistics, vol. 87, no. 4 (2005).
[19] States have some flexibility in the design of their Medicaid
programs within broad federal parameters. For example, under federal
law, states generally must enroll certain mandatory categories of
individuals, which include pregnant women and children up to 6 years
of age with family income at or below 133 percent of the FPL, and
children ages 6 to 19 with a family income at 100 percent or less of
the FPL. States may choose to cover additional categories of
individuals, such as pregnant women and infants between 133 and 185
percent of the FPL. Under federal law, states generally are required
to cover a specified set of benefits for their mandatory and optional
Medicaid populations, such as inpatient and outpatient hospital
services. In addition, states may choose to cover optional benefits,
such as dental and physical therapy services, for these populations.
See 42 U.S.C. § 1396a(a)(10)(A), 1396d(a).
[20] J. Holahan and A. Garrett. "Rising Unemployment, Medicaid and the
Uninsured," Kaiser Commission on Medicaid and the Uninsured
(Washington, D.C.: January 2009).
[21] According to the Census Bureau, per capita income is the mean
income received in a given year computed for every man, woman, and
child in a geographic area. It is derived by dividing the total income
of all people 15 years old and over in a geographic area by the total
population in that area.
[22] The regular FMAP formula establishes the range for the federal
share for most Medicaid service expenditures from 50 to 83 percent for
states. The 0.45 factor in the formula is designed to ensure that a
state with PCI equal to the U.S. average receives an FMAP of 55
percent (i.e., a state share of 45 percent). The formula's squaring of
income provides a higher FMAP than a state would otherwise receive
when the state's income is below the U.S. average. The District of
Columbia is not subject to this formula and instead by law has its
FMAP set at 70 percent.
[23] GAO, Medicaid Formula: Differences in Funding Ability among
States Often Are Widened, [hyperlink,
http://www.gao.gov/products/GAO-03-620] (Washington, D.C.: July 10,
2003).
[24] Under federal law, the Secretary of HHS is required to publish
the regular FMAP for each state between October 1 and November 30 of
each year on the basis of average per capita income of each state for
the 3 most recent calendar years for which satisfactory data are
available from the Department of Commerce. 42 U.S.C. § 1301(a)(8)(B).
[25] As referenced earlier, Congress provided for increases in the
regular FMAPs for states through the Jobs and Growth Tax Relief
Reconciliation Act of 2003 and the Recovery Act. The increased FMAP
authorized under the Recovery Act was subsequently extended, subject
to certain modifications, by the Education, Jobs, and Medicaid
Assistance Act.
[26] This component is also referred to as a "hold-harmless" provision
because it maintains a state's regular FMAP at the higher of its
current or previous year's rate.
[27] Pub. L. No. 111-148, §§ 2001, 10201, 124 Stat. 271, 917, as
amended by Pub. L. No. 111-152, §§ 1004, 1201, 124 Stat. 1034, 1051.
States also have the option to phase in coverage for this new
eligibility group prior to January 1, 2014, and the regular FMAP would
apply to federal matching payments for this coverage.
[28] Pub. L. No. 111-152 §§ 1201(1)(B)(1)(E), 124 Stat. 1052.
[29] The average FMAP was about 57 percent for fiscal years 2005-2008.
[30] For example, Arizona received waivers to expand eligibility for
its Medicaid program in both 2001 and 2007.
[31] [hyperlink, http://www.gao.gov/products/GAO-11-58], 13.
[32] D. Boyd and L. Dadayan, "Revenue Declines Less Severe, But
States' Fiscal Crisis Is Far From Over: Recovery Not in Sight; May Be
Long and Slow," State Revenue Report No. 79, The Nelson A. Rockefeller
Institute of Government (Albany, N.Y.: April 2010).
[33] See E. Ellis, V. Smith, and D. Rousseau, "Medicaid Enrollment in
50 States: June 2003 Data Update," Kaiser Commission on Medicaid and
the Uninsured (Washington, D.C.: 2004).
[34] The Education, Jobs, and Medicaid Assistance Act, enacted in
August 2010, extended Recovery Act assistance, subject to certain
modifications, for two additional quarters through June 2011.
[35] Individual states were determined to be in an economic downturn
if their Coincident Index value had declined from the prior quarter.
State Coincident Indexes are published monthly by the Federal Reserve
Bank of Philadelphia.
[36] In our analysis, state Medicaid needs due to changes in
enrollment are represented by changes in unemployment; Medicaid
enrollment rises as unemployment increases. State Medicaid needs due
to changes in revenues are represented by changes in total state wages
and salaries; state revenue capacity declines as total state wages and
salaries decline.
[37] For the purposes of this analysis we divided states and the
District of Columbia into three groups of 17 states each: high,
middle, and low FMAP states. Except for the District of Columbia, high
FMAP states are those with low per capita incomes relative to the
national average and 2009 regular FMAPs ranging from 64.4 to 75.8. Low
FMAP states are those with higher per capita incomes relative to the
national average and 2009 regular FMAPs from 50.0 to 52.6. The
statutory floor for the regular FMAP is generally 50.00 percent. The
District of Columbia is not subject to the regular FMAP formula and
instead, by law, has its FMAP set at 70 percent.
[38] The correlation factor (r) was 0.74.
[39] The correlation factor (r) was 0.30.
[40] The correlation factor (r) was -0.09.
[41] The 6.2 percentage point FMAP increase given to all states was
almost twice as large as the average increase states received based on
changes in unemployment. During the fourth quarter of the Recovery Act
(July-September 2009), the average unemployment-based FMAP increase
was 3.72 percentage points, and ranged from a low of 0.00 in North
Dakota to as high as 5.39 in several states.
[42] The correlation factor among low FMAP states was r=0.72; among
high FMAP states, the correlation factor was r=-0.09.
[43] Some states with widely different changes in unemployment had
similar reductions in state share. For example, Nevada had a 7.1
percentage point rise in unemployment and a 27.9 percent decline in
state share, while Arkansas had a much lower 2.1 percentage point rise
in unemployment, but a similar decline in state share of 28.1 percent.
[44] During the fourth quarter of the Recovery Act (July-September
2009), wages and salaries among low FMAP states declined by 5.14
percent compared to 3.89 percent among high FMAP states. However, the
state Medicaid shares were reduced by 23.0 percent on average among
the low FMAP states compared to an average reduction of 30.4 percent
among the high FMAP states.
[45] States were held harmless during the third and fourth quarters of
fiscal year 2003 for any reduction in their FMAP between fiscal year
2002 and fiscal year 2003, and during the first three quarters of
fiscal year 2004 for any reduction in their FMAP between fiscal year
2003 and fiscal year 2004. The 2.95 percentage point increase was
applied after the hold-harmless protections had been applied.
[46] See [hyperlink, http://www.gao.gov/products/GAO-07-97].
[47] The automatic trigger would begin the program based on economic
data signaling recession rather than relying on discretionary
legislative action. We previously discussed some of the options for
starting and stopping assistance. See GAO-07-97, 43. Also see GAO-11-
401.
[48] To discuss timing, we refer to recessions using the NBER-
designated periods from the peak month to the trough month (the month
in which the recession ends). Though the NBER designation of the
trough marks the beginning of the recovery phase, the economy can
remain in a slump and Medicaid needs typically continue after the
trough because unemployment and poverty are slow to recover.
[49] Our 2006 report found that while all states received assistance
under our prototype model, some states received less assistance than
others because their increased unemployment occurred either earlier or
later than the national downturn. See GAO-07-97.
[50] Fiscal stimulus programs are intended to increase aggregate
demand, which in macroeconomics is defined as the spending of
consumers, business firms, and government. While not all of the
temporary increases in FMAP will result in additions to aggregate
demand, well-targeted assistance is more likely to arrest declines in
aggregate demand, and thereby increase it compared to what it would
otherwise be.
[51] The employment-to-population ratio is the ratio of the number of
employed persons to the population age 16 or older. The source of
these monthly data by state is the Bureau of Labor Statistics.
[52] The threshold was when fewer than 23 states showed increases in
their quarterly unemployment from a year ago of 10 percent.
[53] Under the Recovery Act, increased FMAP assistance was scheduled
to terminate at the end of 2010. In August 2010, Congress did provide
an extension that would phase out the increases in FMAPs over an
additional two quarters in 2011.
[54] Because assistance would be targeted, states with the deepest
economic downturns would face the greatest losses of assistance when
the program ends. The phaseout rule would allow more quarters of
assistance for these states so that their quarterly loss of assistance
would not exceed the losses of states less affected by economic
downturn.
[55] Because both the change in Medicaid enrollment and change in
revenues can be affected by administrative and policy changes made by
state governments, these effects should be excluded and instead
assistance should be targeted to each state to address the effects of
the economic downturn on Medicaid enrollment and revenues. Data on
states' growth in Medicaid enrollment would not be appropriate because
they reflect different states' Medicaid policy choices. Using data on
states' revenue collections would not be appropriate because they
reflect different states' revenue policy choices.
[56] CHIP was originally known as the State Children's Health
Insurance Program or SCHIP. Subsequent legislation renamed the program
CHIP. In this report, we use the acronym CHIP to refer to the program.
[57] Pub. L. No. 111-5, Div. B, Tit. 5, § 5008, 123 Stat. 511.
[58] Balanced Budget Act of 1997, Pub. L. No. 105-33, § 4901, 111
Stat. 251, 552 (1997).
[59] The enhanced FMAP for CHIP in 2010 ranged from 65.00 to 82.97.
[60] Pub. L. No. 111-3, § 101, 123 Stat. 8, 11 (2009). This
reauthorization appropriated federal funding for CHIP through the end
of September 2013.
[61] Public health surveillance is the ongoing, systematic collection,
analysis, interpretation, and dissemination of data regarding a health-
related event for use in a public health action to reduce morbidity
and mortality, and to improve health.
[62] NASBO has not updated the data in its report, however staff there
stated that the data are likely representative of current percentages.
[63] In fiscal year 2003, health expenditures represented 31 percent
of state budgets, on average, with 71 percent of state shares spent on
Medicaid. Data from the Millbank Memorial Fund, National Association
of State Budget Officers and the Reforming States Group: 2002-2003
State Health Expenditure Report (New York, N.Y.: Millbank Memorial
Fund, 2005).
[64] A state was not eligible for an increased FMAP if its eligibility
standards, methodologies, and procedures were more restrictive than
those in effect on July 1, 2008.
[65] See N. Johnson, P. Oliff, and E. Williams, An Update on State
Budget Cuts: At Least 46 States have Imposed Cuts that Hurt Vulnerable
Residents and Cause Job Loss, Center on Budget and Policy Priorities
(Washington, D.C.: November 2010), and S. Artiga and others, Holding
Steady, Looking Ahead: Annual Findings of a 50-State Survey of
Eligibility Rules, Enrollment and Renewal Procedures, and Cost Sharing
Practices in Medicaid and CHIP, 2010-2011, Kaiser Commission on
Medicaid and the Uninsured (Washington, D.C.: January 2011).
[66] National Association of State Budget Officers and the National
Governors Association, "Medicaid and Other State Healthcare Issues:
The Current Situation, A Supplement to the Fiscal Survey of States"
(Washington, D.C., May 2002). This report notes that because total
health care spending accounted for approximately 27 percent of all
state spending, state budget cuts "inevitably" included state health
programs.
[67] National Conference of State Legislatures, State Budget Update:
November 2010 (December 2010).
[68] N. Johnson, P. Oliff, and E. Williams, An Update on State Budget
Cuts: At Least 46 States have Imposed Cuts that Hurt Vulnerable
Residents and Cause Job Loss, 7.
[End of section]
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